Weekend Reading for Financial Planners (Nov 26-27) 2016 (2024)

Weekend reading for November 26th/27th:

Advisers Worry About Clients Leaving Them Over Fees (Liz Skinner, Investment News) - Amongst advisors serving ultra-high-net-worth clients (those w/ $5M+ in investable assets), a recent Cerulli study finds that 17% of them lowered fees in the past two years, with about half of them doing so specifically to retain existing clients. And a whopping 54% of advisors reported that clients and prospects are asking more questions about their fees. A similar study from SEI also found that about 15% of advisors are reporting fee pressures specifically because of digital advice providers.Notably, though, the data still suggests that most advisors aren't actually losing clients because of fees, which raises the question of whether these fee woes are specific to the individual advisory firms (with only about 1-in-6 firms impacted), as opposed to whether there really is fee pressure across the industry at large. (Especially given recent industry benchmarking data showing the median AUM fee has actually remained steady for the past 5 years, despite the rise of the robo-advisors.)

Revisions To CFP Board's CE Policies Effective February 1 2017 (CFP Board) - Earlier this month, the CFP Board announced a series of revisions to its continuing education requirements for CFP certificants that will take effect on February 1st. The changes do not impact the total number of continuing education hours required, but will make some adjustments to the types of activities that are eligible for CE credit in the first place. Relevant changes include: CFP Board will continue to provide CE credit for coursework to pursue other designations, but will no longer count the time it takes to study for and pass an exam for a designation or license (ostensibly including FINRA self-study exams); "authorship" CE for writing white papers or full-length research articles, or for creating presentations, will no longer have a specific word count requirement and credit can be received for being a secondary author(but writing short newspaper or magazine articles, Q&As, or company newsletter articles for clients, still won't count), but available CE credit is fixed at the length of presentation plus 2 hours for presentations, and 15 hours for Journal articles;CE credit for "teaching" CE courses is being tightened to only include adjunct or full-time professors at colleges or universities where instruction is equal to a minimum of 30 hours per quarter/semester (but not for providing CE presentations at other types of educational events, although development ofthe presentation would still be eligible for one-time presentation-authorship CE); and teaching the CFP Board's Ethics CE program will satisfy the instructor's own Ethics CE requirement (so Ethics instructors don't have to separately sit through an Ethics class themselves). In addition, when it comes to self-reporting CE credits from non-registered CE programs, the CFP Board is increasing the filing fee from $25 to $40 per program, and will only be honored if submitted through the CFP Board's online form via its website (i.e., faxed or mailed CE reporting will no longer be accepted).

6 Irresistible Incentives That'll Quadruple Your Financial Planning Prospect List (Ronald Sier, See Beyond Numbers) - For many financial advisors, marketing can feel like a lot of activity with limited results, as though they're trying to pump water through a leaky pipe; accordingly, though, Sier points out that most advisors try to pump more water to fix the problem, when in reality it would probably be better to just fix the leaks! And one of the best ways to fix the leaky pipe, and get prospects to better engage, is to engage what psychologist Robert Cialdini calls the "Reciprocity Principle"– give something to the prospect first, to interest them in engaging with you in return. In the context of marketing, this means creating some kind of "free gift" for clients –it could be inspirational, help them solve an immediate problem, help them to expand their knowledge on a topic that's relevant to them, or help nudge them towards a goal. As examples, Sier cites advisor Brittney Castro's free "Financially Wise Toolkit", Wealthcare for Women's free email course, Above the Canopy's "Financial Independent Vault" (of time-saving tools), and more. The fundamental point –don't just assume a visitor to your website, or a prospect who sees your marketing, is going to be ready to do business the first time they see you. Instead, find a way to engage them by giving them something to create a connection... and then build the trust relationship over time until they're really ready to become a client!

The 4 Biggest Social Media Mistakes Advisers Make (Craig Faulkner, Financial Planning) - While advisor adoption of social media is growing, many advisors still struggle to get the results they want. Faulkner suggests four key mistakes that financial advisors make (and should try to avoid): 1) Worrying about posting too much, when the reality is that there's so much content on social media, there's little danger in doing so (as Twitter users post continuously all day, and even Facebook and LinkedIn users often post at least a few times a week, if not daily), and the real opportunity is simply to find a regular cadence (a steady rhythm that followers can expect); 2) Focusing on gaining followers, as the reality is for financial advisors it's all about engaging people to become clients (which means 50 engaged followers can be more productive than 10,000 uninterested strangers); 3) Failing to have a Call To Action that actually motivates followers to take action (e.g., by directing clients to a website where they are actually invited to schedule a meeting!); and 4) Being too self-promotional, as people engage on social media to gather information relevant to them, not just to hear about you (and so Faulkner recommends a 3:2:1 ratio of evergreen educational articles, personal content about yourself, and topical articles that are timely and relevant, to maintain a steady mixture).

How To Add An Online Calendar Scheduler To Your Website (Claire Akin, Indigo Marketing) - Online appointment scheduling software is a tool you can embed on your website or in your email, providing clients or prospects a link that they can click to schedule a meeting with you. The virtue of online appointment software tools is that they sync directly with your calendar (e.g., via Outlook, Google Calendar, or an industry platform like Redtail CRM), find available time slots, and offer them up directly to the individual to select their own appointment time. The software can set "busy" or available hours, offering various meeting lengths, add time buffers between appointments, and still allow you to confirm a meeting before it's scheduled. The three most popular versions are ScheduleOnce, TimeTrade, and Calendly. The biggest virtue of using these tools is the amount of time you can save –few people realize how much time is wasted with back-and-forth email or phone tag trying to schedule a time to meet, until it's automated with an online appointment scheduling tool(and with clients, you may find that by being more accessible and easier to schedule by telephone, clients demand fewer in-person meetings, saving even more time). For prospects,making it easier for people to schedule time for a call with you can even enhance their willingness to meet –in other words, you may even find that you get more prospect inquiries by simply making the online appointment scheduling solution available. To get set up, you simply need to create an account with one of the services, link your Google account or other calendar system, do some basic configuration (e.g., set your time zone, add a photo/logo), and then you can create the types of meetings/events that will be available for people to schedule with you. Once it's created, you can add it to your website, embed it into your email signature, or simply keep the scheduling link hand to offer people in email correspondence when you're ready to schedule a meeting!

What’s Wrong With Advisor Tech, And How To Fix [Some Of] It (Joel Bruckenstein, Financial Advisor) - Notwithstanding the major advances in advisor technology over the past few years, substantial gaps still exist today, many of which are unfortunately beyond the control of any particular advisor. Arguably the top industry-wide problem is integration (or the lack thereof), and while the advent of APIs and middleware are improving the situation, it's still a real challenge. One alternative is to seek out an all-in-one solution –for instance, the Envestnet/Tamarac Advisor Xi Suiteprovides bundled CRM, portfolio management and reporting (along with rebalancing), a client portal, and since last year's acquisition, FinanceLogix financial planning software can be bought alongside (likely more integrated over time). However, that means the advisor has to be comfortable withallthe components of the package, as you lose the depth of integration if you want to pick and choose (e.g., to use Tamarac for rebalancing, but some other third-party CRM). Similarly, a number of independent broker-dealers are building their own all-in-one technology platforms (also including compliance support), but again the number of choices may be limited. Independent RIAs tend to try to patch together the "best-of-breed" (or "best-in-class") approach of trying to weave together each component, which provides more flexibility, but some integrations may be missing or shallow (e.g., one-way but not two-way, or two-way but not synchronized real-time) and the depth of integrations are often beholden to the RIA's custodian. And with many custodians, there's still a major gap in the world of client onboarding in particular, where custodians either can't handle digital forms and e-signature, or if they can they only allow it for the custodian's forms but not the advisor's own advisory agreement (despite the fact in the real world the client must sign all of them at once!). Similarly, many custodians can handle digital deposit of checks directly from retail consumers, but not for RIAs. Notably, though, Bruckenstein points out that indirectly, advisors must consider their role as well – while demands for integrations are rising, many are still resistant to paying up for quality technology solutions... whichis a real challenge for technology vendors, as developing each new integration has a cost, and there are rapidly diminishing returns in trying to integrate with "everyone".

7 Phases Of The Client Experience (John Bowen, Financial Planning) - Even after a client agrees to work with a financial advisor, the first 100 days of working with the client are critical to cement the relationship (or set it up for failure)... otherwise, the client will leave, or at least may redirect additional assets to a new/different advisor. More broadly, though, it's crucial to recognize that the start of the client relationship itself (that first 100 days) is really part of a seven-phase process as someone goes from being a prospect (not yet a client) to a client who actively refers and advocates for the advisor. The seven phases are: 1) Assessment (where the prospect decides whether it's worthwhile to work with you versus someone else, or just remaining a do-it-yourselfer, which is challenging since most advisors look the same to a consumer, and few do a good job really painting the picture of what it will be like to work with that advisor); 2) Activation (the moment when the prospect decides to become a client); 3) Affirmation (when the prospect-now-client tries to affirm the decision, and faces the potential for buyer's remorse, and thus is a time when it's crucial to follow up with the client to reaffirm their decision to come on board); 4) Admission (when you actually begin the onboarding process with the new client, and remember that even if it's your 100th time onboarding, it's your client's first time, so make it count!); 5) Acclimation (when clients really settled into the process, but also start getting bombarded with all the new account paperwork, transfer confirmations, and more, where again they may need a little affirmational hand-holding); 6) Adoption (when the client begins to really take ownership of the relationship and feel invested into it as well); and 7) Advocacy (when the client is actually ready to start referring you –especially if phases 3 through 5 during the first 100 days went smoothly!).

7 Steps To Facilitate Exquisite Listening (Brad Klontz & Ted Klontz, Journal of Financial Planning) - Despite being in a relationship business where communication with clients is critical, the reality is that most people are not particularly skilled listeners, and most financial advisors have no education or training in how to actually listen effectively. And notably, truly effective listening –or what the authors call "exquisite listening" –is more than just not interrupting when the client talks, maintaining eye contact, and nodding your head affirmatively, because too often the reality is still that we're just waiting for the client to pause so we can ask the next question in our process, or make the next point about our services or the recommendation we're giving. Instead, the goal should be not just hearing and understanding what the client is saying, but trying to understand the deeper truths and meanings behind the words, that can provide an indication of the client's real focus and motivations. And in fact, the most effective listening process actually asks very few questions, and primarily just allows the client's own comments to flow, as research suggests that even the act of asking a question can have a negative impact on a client(which means "tell me more" kinds of statements are more effective than trying to ask follow-up questions!). Klontz suggests a seven-step process for engaging in exquisite listening: 1) start the conversation with an invitation (e.g., "I have some items on the agenda to cover, but first I'm curious about what concerns you most today?"); 2) listen intently to the response (truly, which means putting aside your own agenda –literally, put the paper down!); 3) summarize what you heard (because it helps clients feel understood); 4) ask if there is anything you have missed in your summary (which invites the client to open back up and clarify); 5) repeat steps 3 and 4 over and over again as the conversation evolves; 6) pick a word, phrase, or concept, and invite the client to give more information about it (e.g., "tell me more about what financial security means to you"); and 7) end with a grand summary of what you heard, to reflect to the client that they have been truly heard.(Michael's Note: For advisors who really want to delve deeper into these skills, Klontz actually offers an educational workshop on this topic!)

Three Referral Myths And How They Limit Your Growth (Julie Littlechild, Absolute Engagement) - Many advisors are not satisfied with the volume of client referrals they receive, and commonly attribute it to the fact that not enough of their clients are making referrals (and that, perhaps, the clients need to be asked more). But Littlechild notes that after doing years of client surveys, the reality is that almost 4-in-5 clients say they're comfortable referring, about half of clients say they'll refer in the next year, and about 1/3rd of clients say they actuallydidrefer in the last year. In turn, this raises the question of why so few advisors actually see that many referrals (as for most, a referral from 1/3rd of their clients would be alotof new clients!). The answer: because most clients either give referrals that aren't actionable enough for the person to follow through, or worse, the advisor's website and marketing are such a turn-off that when the prospect shows up, they decide themselves not to follow through! The real key is that the advisor needs to position themselves as providing a particular solution to a specific problem, so that when clients refer someone forthatproblem, the prospect reallywillbe likely to reach out for help. Because the reality is that most clients don't actually refer to help the advisor; they refer to help the friend or family member they referred! Which means having a clear solution that makes the advisor more referable is crucial to actually getting the referral!

The Five Types Of Retirement (J.D. Roth, Money Boss) - According to the book "A History Of Retirement", the reality is that until the relatively recent modern era, "retirement" wasn't always considered desirable, and it arose in part from corporations enforcingmandatoryretirement in their efforts to pursue a younger workforce. In the modern era, retirement has become more acceptable, but as its popularity grows, so too does the very nature of what retirementmeansand what its real goal and purpose is.In turn, this has started to raise the question of whether the "standard" model of retirement - where you go to school for your first 20 years, then work for about 40 years, and then retire for the last 20-30 years, is really the right approach. For instance, some people pursue the work-and-save phase more aggressivelyand try to retire early, in an effort to work just 20-30 years and enjoy 40+ years of retirement instead. Others, though, retire and then find they're bored and they don't enjoy it, and want to go back to work; yet if they actuallyplannedfor a series of work-retire-work-retire transitions, they wouldn't need to save and accumulate in the same manner in the first place. Still others are pursuing a state of permanent "semi-retirement", which is all about a work-life balance that entails less than the "traditional" full-time level of work, but engaging in a meaningful level of part-time work that could extend for decades (and once again, would mean that not as much savings is necessary in the first place). And now some people are even exploring a "mini-retirements" approach, where periods of work are punctuated by regular temporary retirement phases –for instance, a series of work-5-years-take-2-years-off cycle that repeats, potentially half a dozen times or more, throughout the individual's lifespan. The fundamental point –"retirement" means different things to different people, and that's relevant not only to help them clarify their goals and understand what's possible, but also because some of the "alternative" retirement approaches could entail substantially different approaches to saving and investing as well!

Why The Math Behind Passive Investing May Be Wrong (Wesley Gray, Wall Street Journal) - In a famous paper in 1991 entitled "The Arithmetic of Active Management", Bill Sharpe pointed out that active investors play a zero-sum game (for every winner, there is an offsetting loser), such that active investing can never average out to above-market returns (and after expenses, must underperform in the aggregate), and merely being a passive indexer and owning the market at the lowest possible cost is the most effective long-term bet. However, in a recent white paper entitled "Sharpening the Arithmetic of Active Management", Professor Lasse Pedersen makes the case that Sharpe's conclusions may not be entirely accurate, due to faulty assumptions. Specifically, it assumes the market is static (when in reality it is not, as new firms are created through IPOs, shares are issued or repurchased, and indexes are regularly reconstituted), and that active investors will only ever trade with active investors (when in reality passive investors can and do rebalance, and those who make ongoing contributions or withdrawals need to execute trades as well, all of which would be done with active investors on the other side of the trade). The end result is that because even passive investors will cross the active/passive trading divide at least to some extent, active trading may not be a perfect zero-sum game, as passive investors will end up paying at least some indirect 'cost' to active investors for the liquidity they need to be passive investors (not to mention the "passive" investors who are actively tradingin"passive" index ETFs). Of course, this still doesn't necessarily mean most or even many active funds will outperform net of costs, particularly given the expense ratios of some funds; nonetheless, there's at least a valid case to be made that assuming active investing is a zero-sum game may be overstating the challenge, at least to some extent.

How Much Is A Financial Advisor's Service Really Worth? (Paul Katzeff, Investors Business Daily) - In a recently updated whitepaper, Brad Jung of Russell Investments has estimated that the value of a financial advisor is more than 3.75%/year. As with other recent studies aiming to quantify the value of financial planning advice, this value is the estimated cumulative impact of various benefits of working with a financial advisor, including steering clients away from bad investment habits and the so-called "behavior gap" (worth 2.1% in Jung's estimate), plus the benefit of rebalancing (estimated at 0.2%/year), basic investment account servicing (worth 0.25% based on the going rate of other robo-advisors), the various benefits of specific financial planning strategies (worth 0.75% based on the cost to get all that advice piecemeal), and tax-aware investment strategies (worth 0.45%, by leveraging the benefits of tax-efficient investing). Of course, the classic "YMMV" (Your Mileage May Vary) caveat looms large with such a broad-based estimate of value (especially around the value of specific financial planning strategies), but the fundamental point remains that the cumulative value on the table still far exceeds the "typical" 1% AUM fee that advisors charge.

I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors as well.